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Determinants of Price Elasticity

The document discusses several determinants of price elasticity of demand: 1) The extent of substitutability - Demand is more elastic when more substitutes are available and less elastic when fewer substitutes exist. 2) The nature of goods - Demand for luxury goods is more elastic than for necessities. 3) The importance of goods to consumers - Goods that account for a high percentage of spending have more elastic demand. 4) The price of goods - Highly priced goods have more elastic demand than lower priced goods. 5) Price expectations of buyers - Expectations of future price changes can impact elasticity.

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54 views11 pages

Determinants of Price Elasticity

The document discusses several determinants of price elasticity of demand: 1) The extent of substitutability - Demand is more elastic when more substitutes are available and less elastic when fewer substitutes exist. 2) The nature of goods - Demand for luxury goods is more elastic than for necessities. 3) The importance of goods to consumers - Goods that account for a high percentage of spending have more elastic demand. 4) The price of goods - Highly priced goods have more elastic demand than lower priced goods. 5) Price expectations of buyers - Expectations of future price changes can impact elasticity.

Uploaded by

Jessie J.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Determinants of

Price Elasticity
What is
Elasticity
?
THE EXTENT OF SUBSTITUTABILITY
BETWEEN GOODS
Larger the number of
substitutes
available to a product, the
more will be the elasticity of
demand; the smaller the
number, the less elastic the
demand.
NCYSETSE
I
NECESSIT
Y
THE NATURE OF THE GOODS

The demand for luxury


goods in general is
more elastic than
the demand for
necessary goods.
THE IMPORTANCE OF THE GOODS
A product which
accounts for a high
percentage of
consumer’s total
expenditure is
characterized by high
elasticity.
THE PRICE OF THE PRODUCT ITSELF
Highly priced goods tend to have
elastic demand, while
lower-priced goods have less
elastic demand. The expression
‘highly priced’ is normally
taken to mean a price at which the
quantity that the consumer plans to
buy is close to
zero.
PRICE EXPECTATION OF BUYERS
When the price of the goods has fallen
and the buyers
expect
Title textit to fall further,
Title text
then they will
postpone buying the goods and this
will make
demand less responsive. On the other
hand, if they expect price to go up
then they will
speed up purchase, which will
increase elasticity.
Time Allowed for Making
Adjustment in Consumption Pattern
In the short-run, it is very difficult to change
habits. Hence the short-term demand is less
responsive to price change. The longer the
time allowed for making adjustment in
consumption pattern, the greater will be the
elasticity. The consumers in the long-run
would look for better substitutes. Hence the
elasticity increases in the long-run.
Thank you for
listening

Prepared by:
Gojo Cruz, Preland

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